Ofcom, the media watchdog, put itself on collision course with BSkyB today by outlining plans that could force the pay-TV company to slash the prices it charges other companies to carry its premium sports and movie channels.

In its latest update on its two-year investigation of the pay-TV market, the regulator also proposed examining the terms of Sky's rights agreement with the FA Premier League and warned that it could refer its deals for movie rights with Hollywood studios – the other cornerstone of its subscription success – to the Competition Commission.

While rivals such as BT and Virgin Media welcomed Ofcom's move to broaden access to its premium content, Sky reacted angrily, branding it an "unwarranted intervention".

"Forcing Sky to sell its channels for less than their true value is a subsidy for companies that have shown no appetite for investment in programmes," said Sky's chief executive, Jeremy Darroch.

"BT and Virgin Media do not deserve to be handed a reward at Sky's expense for their repeated failure to invest.

"It defies belief that Ofcom expects Sky to lower its wholesale prices to compensate for the higher costs of less efficient platforms."

However, Gavin Patterson, the chief executive of BT Retail, called on Ofcom to "step up the pace".

"It is time for Ofcom to open the doors of the pay-TV market and let in the fresh air of competition," he said.

"Prices have been too high for too long but this could all change if Ofcom breaks Sky's stranglehold by creating a level playing field."

Under Ofcom's proposals, Sky could be forced to slash the wholesale rates it charges Virgin for channels such as Sky Sports and Sky Movies by up to 30%.

For example, Ofcom proposes dropping the cost of buying Sky Sports 1 or Sky Sports 2 from the current £13.48 per subscriber to between £9.41 and £11.24. The lower price is just 34p above the "cost-plus" price, the point at which Sky has covered all its costs and made a "reasonable return" on its investment.

As well as potentially benefiting Virgin customers, lower wholesale prices should allow Sky to strike deals for its premium channels with operators that do not at present carry them, such as Top Up TV, BT Vision and other broadband services.

At the moment Sky's premium channels are available only to Sky's satellite subscribers or on cable.

"Some programming, such as live top-flight sport and first-run Hollywood movies, is of particular importance to consumers," Ofcom said in a statement. "Ofcom considers that Sky has market power in the wholesale supply of channels containing this attractive content, and that it is acting on an incentive to limit the distribution of these channels to rival TV platforms."

Consumers faced a restricted choice of channels and platforms and higher prices as a result, while new forms of distribution could be prevented from developing, the regulator added.

Ofcom argued that by making its channels more widely available, Sky would actually boost its wholesale revenues.

The regulator said that Sky would make an extra £240m over five years, according to the middle of its range of estimates. Darroch hit out at "Ofcom's assumption that it knows better than us how to create value for our business".

UBS analyst Daniel Kerven estimated that if Sky's ratecard were cut by just 10%, its earnings before tax and interest would be reduced by about 1.5%.

But he said the threat to Sky's satellite subscription business was limited and the company should be better off as a result of more pay-TV on digital terrestrial television.

Ofcom also said it would look at the way Sky buys football rights from the FA Premier League, ahead of the next rights auction in 2012.

It said the review would explore whether the Premier League would be willing to provide further commitments beyond a previous agreement with the European Commission that forced Sky to face competition in live English top-flight football for the first time. The beneficiary of that deal, the Irish broadcaster Setanta, went into administration this week, ceding its Premier League rights to the Disney-owned ESPN.

The FA Premier League's chief executive, Richard Scudamore, said Ofcom appeared to have "ignored the representations of content owners".

"We will resist any measures that disincentivise media organisations from bidding for our rights directly and at the appropriate market value," he said.

The other strand of Ofcom's review will look at "subscription video on demand" rights to movies that Sky buys as part of its deals with Hollywood studios but does not exploit. Ofcom said it would explore the commercial intentions of the studios before referring the matter to the Competition Commission. The regulator is to hold a further 12-week consultation before setting out its final verdict.